What is COBRA?
COBRA (Consolidated Omnibus Budget Reconciliation Act) is a federal law passed in 1985 that requires employers with 20 or more employees to offer continued health insurance coverage to employees (and their dependents) who lose group coverage due to certain qualifying events.
Think of COBRA as a "bridge" that allows you to temporarily keep your employer-sponsored health insurance after leaving your job or experiencing other life changes. You pay the full cost of the insurance (both what you used to pay AND what your employer paid) plus a 2% administrative fee.
Key COBRA Facts
- ✓ Keep your SAME doctors and SAME plan
- ✓ Temporary coverage (18-36 months depending on situation)
- ✓ You pay 102% of full premium
- ✓ Must elect within 60 days of losing coverage
- ✓ Applies to employers with 30+ employees
- ✗ Often VERY expensive (you pay employer's portion too)
- ✗ Cheaper alternatives usually available on ACA marketplace
COBRA Qualifying Events
You become eligible for COBRA when you experience a "qualifying event" that causes you to lose group health coverage. Different events have different coverage periods:
Employee Qualifying Events
- • Voluntary or involuntary job termination (except gross misconduct)
- • Reduction in hours making you ineligible for coverage
Dependent Qualifying Events
- • Divorce or legal separation from covered employee
- • Death of covered employee
- • Covered employee becomes entitled to Medicare
- • Child loses dependent status under the plan
How COBRA Works
Understanding the COBRA process helps you meet deadlines and make informed decisions:
Qualifying Event Occurs
You lose group health coverage due to job loss, reduction in hours, or another qualifying event.
Employer Notifies Plan Administrator
Your employer must notify the plan administrator within 30 days of the qualifying event.
You Receive COBRA Notice
The plan administrator must send you a COBRA election notice within 14 days. This notice explains your rights, costs, and deadlines.
Decide: COBRA or Alternative?
Compare COBRA costs to ACA marketplace plans. Losing employer coverage qualifies you for a Special Enrollment Period (60 days) to buy individual insurance—often with premium tax credits that make it MUCH cheaper than COBRA.
Elect COBRA (If Desired)
Complete and return the COBRA election form. You have 45 days to make your first payment (retroactive to your coverage end date). If you elect COBRA, coverage is retroactive—no gap in coverage.
Pay Monthly Premiums
Pay your COBRA premiums monthly (usually directly to the insurance company or a COBRA administrator). You have a 30-day grace period for payments after the first one.
COBRA Costs
COBRA is often shockingly expensive because you're paying the FULL cost of insurance—both the employee and employer portions:
| Cost Component | Who Pays | Typical Amount |
|---|---|---|
| Employee Portion | You (already familiar with this) | $100-300/month typical |
| Employer Portion | NOW YOU! | $400-600/month typical |
| Administrative Fee | You | 2% of total premium |
| Total COBRA Cost | $500-900+ per month | |
Example: COBRA Cost Shock
As an active employee:
- • You paid: $200/month
- • Employer paid: $600/month
- • Total premium: $800/month
On COBRA:
- • You pay: $800 × 102% = $816/month
- • Employer pays: $0
Your cost just increased from $200/month to $816/month—over 4x more!
Better Alternatives to COBRA
Before you elect COBRA, explore these alternatives—they're often MUCH cheaper:
ACA Marketplace Plans (Best Option!)
Losing employer coverage qualifies you for a 60-day Special Enrollment Period on the ACA marketplace. You can purchase individual insurance—often with substantial premium tax credits.
Advantages:
- ✓ Often 50-75% cheaper than COBRA with tax credits
- ✓ Same or better coverage
- ✓ All major carriers and plan types
- ✓ Can last indefinitely (not temporary)
- ✓ Premium tax credits based on income
Spouse's Employer Plan
If your spouse has employer-sponsored insurance, losing your own coverage qualifies you for a Special Enrollment Period to join their plan mid-year.
Advantages:
- ✓ Usually cheaper than COBRA
- ✓ Employer contribution helps
- ✓ Stable, ongoing coverage
- ✓ No income limits or qualifications
New Employer's Plan
If you're starting a new job, you may be able to enroll in your new employer's health insurance. Most plans have a waiting period (30-90 days), so you might need short-term coverage to bridge the gap.
Bridge options:
- • Short-term health insurance (limited coverage)
- • Elect COBRA but only pay if you need care
- • Go uninsured (risky!)
Short-Term Health Insurance
Short-term plans provide temporary coverage (up to 3 years in Texas). They're cheaper than COBRA but offer limited benefits and don't cover pre-existing conditions.
Best for:
- • Healthy people waiting for new employer coverage
- • Bridge coverage between jobs
- • People who don't qualify for ACA subsidies
COBRA vs. ACA Marketplace: Cost Comparison
Let's compare COBRA to an ACA marketplace plan for a typical scenario:
| Factor | COBRA | ACA Marketplace (with tax credit) |
|---|---|---|
| Monthly Premium | $816 | $450 (before credits) - $300 (tax credit) = $150 |
| Annual Cost | $9,792 | $1,800 |
| Deductible | $1,500 (same as group plan) | $2,000 (Silver plan typical) |
| Doctor Choice | Same network as before | New plan network (check doctors) |
| Duration | Max 18-36 months | Indefinite (renew annually) |
| Winner | — | ACA Marketplace saves $7,992/year! |
Let's Calculate YOUR Costs
I can compare your COBRA premium to ACA marketplace plans with premium tax credits to show you exactly how much you'd save. In most cases, ACA plans cost 50-80% less than COBRA—and may offer equal or better coverage.
When COBRA Makes Sense
While ACA marketplace plans are usually cheaper, COBRA is the better choice in certain situations:
- You're in the middle of treatment - Keep your same doctors and avoid changing mid-treatment
- You've met your deductible - If you've already met a high deductible this year, COBRA lets you keep that progress
- You have a serious chronic condition - Your current plan covers your specific specialists and treatments perfectly
- Your income is too high for ACA subsidies - If you don't qualify for premium tax credits, COBRA might be competitively priced
- You need short-term bridge coverage - Starting a new job soon and just need 1-2 months of coverage
- You're close to your out-of-pocket max - Keep the plan to hit your max and get free care the rest of the year
Common COBRA Pitfalls to Avoid
Don't make these expensive COBRA mistakes:
Pitfall #1: Electing COBRA Without Shopping Around
Many people panic and elect COBRA immediately without comparing alternatives. Take time to compare ACA marketplace plans—you might save thousands. You have 60 days to decide, and COBRA is retroactive if you need it.
Pitfall #2: Missing the 60-Day Deadline
If you don't elect COBRA within 60 days, you lose the right to COBRA coverage entirely. And if you miss the Special Enrollment Period for ACA plans (also 60 days), you'll have to wait until Open Enrollment (Nov 1 - Jan 15) unless you have another qualifying event.
Pitfall #3: Missing Premium Payments
COBRA administrators are STRICT about payment deadlines. If you miss a payment (even by a day after the grace period), your coverage terminates immediately and you can't get it back. Set up automatic payments or calendar reminders.
Pitfall #4: Assuming COBRA is Your Only Option
Many people think COBRA is required or the only way to keep coverage after job loss. FALSE! You have multiple options, and COBRA is often the most expensive. Always compare before deciding.
Texas State Continuation (Mini-COBRA)
Texas also has a state continuation law (sometimes called "Mini-COBRA") that applies to employers with 2-19 employees. It works similarly to federal COBRA but with some differences:
| Factor | Federal COBRA | Texas State Continuation |
|---|---|---|
| Applies to | Employers with 30+ employees | Employers with 2-19 employees |
| Duration | 18-36 months | 6-9 months (varies by situation) |
| Election Period | 60 days | 31 days |
| Cost | 102% of premium | 102% of premium |
Get Expert Help with COBRA vs. ACA
Choosing between COBRA and ACA marketplace plans is a major financial decision. I can help you:
- Calculate your exact COBRA costs
- Compare ACA marketplace plans available to you
- Estimate your premium tax credit eligibility
- Check if your doctors are in-network on ACA plans
- Understand coverage differences and trade-offs
- Enroll in the best option for your situation
- Meet all deadlines and avoid coverage gaps
Compare COBRA vs. ACA Marketplace
Don't overpay for COBRA! Let's compare your options and find the most affordable coverage. I'll show you exactly how much you can save with ACA marketplace plans. Free consultation, no obligation.